purchase price

(noun)

The price at which something is actually purchased, especially from the point of view of the purchaser.

Related Terms

Examples of purchase price in the following topics:

  • Cost of Buildings

    • The cost of a building is its original purchase price or historical cost and includes any other related initial costs.
    • The cost of a building is its original purchase price or historical cost and includes any other related initial costs spent to put it into use.
    • Similar to land, buildings are also a type of fixed asset purchased for continued and long-term use in earning profit for a business.
    • If at a future date a building is sold due to a business relocation or other reason, any gain or loss on the sale is based on the difference between the building's net book value and the market sales price.

  • Cost of Equipment

    • The cost of equipment is the item's purchase price, or historical cost, plus other initial costs related to acquisition and asset use.
    • The equipment's cost is calculated by adding the item's purchase price, or historical cost, to the other costs related to acquiring the asset.
    • When an equipment is sold, the sale of the asset can trigger a gain or a loss, depending on the difference between the equipment's net book value and its sale price.

  • Cost of Land

    • Land is recognized at its historical cost or purchase price, and can include any other related initial costs spent to put the land into use.
    • Land is recognized at its historical cost, or the cost paid to purchase the land, along with any other related initial costs spent to put the land into use.
    • For example, land purchased in 1988 for $90,000, would still appear on the December 31, 2010 balance sheet at $90,000, even though its market value is now $300,000.

  • Accounting for Sale of Stock

    • There are several reasons a company may purchase treasury stock, it may need it for employee compensation plans, to buy another company or to reduce the number of outstanding shares.
    • When treasury stock is sold the accounts used to record the transaction will vary depending on whether the stock sold above or below the cost of purchase.
    • Credit additional paid in capital (the difference between sale price and purchase price)

  • FIFO Method

    • These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes .
    • This method assumes the first goods purchased are the first goods sold.
    • Ending inventory = beginning inventory + net purchases - cost of goods sold
    • Periods of Rising Prices (Inflation)FIFO (+) Higher value of inventory (-) Lower cost of goods sold
    • Periods of Falling Prices (Deflation)FIFO (-) Lower value of inventory (+) Higher cost of goods sold

  • Calculating Fair Value

    • An example of how to determine fair value can involve the purchase of company shares of less than 20% total equity -- assume ABC Corporation purchases 10% of XYZ's Corporation's common stock, or 50,000 shares.
    • The market price of the stock is USD 1.
    • An example of how to determine fair value can involve the purchase of company shares of less than 20% total equity -- assume ABC Corporation purchases 10% of XYZ's Corporation's common stock, or 50,000 shares.
    • The market price of the stock is USD 1.
    • Fair value is defined as a rational and unbiased estimate of the potential market price of a good, service, or asset.

  • Flow of Inventory Costs

    • These methods are used to manage assumptions of cost flows related to inventory, stock repurchases (if purchased at different prices), and various other accounting purposes.
    • Purchase date: 10/1/12 -- 10 units at a cost of USD 5
    • Purchase date: 10/5/12 -- 5 units at a cost of USD 6
    • Purchase date: 10/1/12 -- 10 units at a cost of USD 5
    • Purchase date: 10/5/12 -- 5 units at a cost of USD 6

  • Reporting Equity Investments

    • When the amount of stock purchased is between 20% and 50% of the common stock outstanding, the purchasing company's influence over the acquired company is often significant.
    • To account for this type of investment, the purchasing company uses the equity method.
    • Under the equity method, the purchaser records its investment at the original cost.
    • The market price of the stock is USD 1.
    • DR - Investment in XYZ Corporation USD 80,000 (80,000 shares * USD 1 market price/share)

  • Types of Transactions

    • Transactions include sales, purchases, receipts, and payments made by an individual or organization.
    • The amount recorded is the actual monetary value of the transaction, not the list price of the merchandise.
    • A discount from list price might be noted if it applies to the sale.
    • Purchases can be made by cash or credit.
    • As credit purchases are made, accounts payable will increase.

  • Selecting an Inventory Method

    • Specific Identification: Assume that a company bought three identical units of a given product at different prices.
    • Purchase date: 10/5/12 -- 5 units at a cost of USD 6
    • When the sale is made, it is assumed that the 10 units purchased on 10/1/12 and 1 unit purchased on 10/5/12 were sold
    • When the sale is made, it is assumed that the 5 units purchased on 10/5/12 and 6 units purchased on 10/1/12 were sold.
    • When a company uses the weighted-average method and prices are rising, its cost of goods sold is less than that obtained under LIFO, but more than that obtained under FIFO.